Why Did the U.S. and China Cooperate Well and Part Now?

Dr. Wordman

 
The title is a trillion-dollar question begging for an accurate and complete answer. If we had a clear understanding of this question, the U.S. and China might be able to continue their Chimerica era with mutual benefits creating a complimentary prosperous economy for both countries and the world. However, this question is a complex one that so far no one can offer a clear answer without being influenced by ideological biases in each political system. After all, any economic development is highly dependent on the political system it operates under. The U.S. and China are two great nations with drastically different histories and cultures and more critically different political systems. However, though the question is hard to answer with a clear, logical, and systematic analysis (to put it in an economic and political model), the author believes it is possible to collect all known tidbits about understanding and answering the title question. It is critically important for us to try to answer this question so we may stop the two nations on the parting track, reversing a hostile competition to friendly cooperation. We must admit that if the U.S. and China could pursue a complementary and cooperative economy, the results will be beneficial to both American and Chinese people and the world. In the following, we will analyze the question in two parts, one, why did the U.S. and China cooperate well in the past, and second, what caused the two nations to part ways. We will list all known facts together to get a feel for the question. Depending on one’s knowledge and experience about China and the U.S., we may form an opinion on the two-part question. With that, we may then proceed to formulate an answer to the trillion-dollar question.
 
Here is my collection of facts:
 
I. Why can the two different systems (the U.S. and China) cooperate (in the past)?

• When two objectives have little conflict

The U.S. has been a world superpower since WWII, with its foreign policy focusing on being a power (military and economic) leader of the world, suppressing other ambitious powers, and aiding struggling nations. China was poor after nearly one century of foreign invasions, with a desperate need to develop its economy and lift its people from poverty.

• China’s strategy is to create a favorable competitive environment for the nation with an extremely flexible system to attract foreign investment to pull up its economy.

China experimented with several national economic development models under the philosophy of communism - all people to be enriched at the same time and in the same way, but it failed. Under Deng Xiao Ping, a flexible approach, humble to learn and adapt and let small populations get rich and pull up the others. China allowed every region to leverage its resources, people, and market to cut special deals to draw foreign investments to create local jobs (low cost to foreign corporations). The U.S. as well as many developed countries took the opportunity to do business in China with special deals. The West including the U.S. exploited their obsolete and non-critical technologies and capitals to gain market shares and cheap labor. For the capitalist West, having a special deal of monopolizing a local Chinese market made their capital and technology investment earning easy and huge returns. The automobile market in China is the most notorious example, GM, Volkswagen, and Japanese brands monopolized many cities in China.

• China needs to create millions of jobs for its people. With little capital and technology, China must leverage its people, labor, and market.

However, it has created a competitive incentive plan for regions to compete and work hard guided by a national strategic development plan. The coastal provinces were first developed. They advanced in technology and skills, capable of upgrading their industries. The regions leveraged their land for capital. Selectively, they developed industry by industry, creating their supply chains. 

• When the U.S. has both capital and technology and needs cheap labor and market

Under this condition, the U.S. worked well with China. The U.S. exports technology and capital to China and imports low-priced goods from China. That was the time, China traded a billion pairs of jeans for a Boeing 747. The U.S. corporations were making huge profits, and the American people were enjoying inexpensive goods.

• The U.S. believes in free competition and capitalism only under favorable conditions.

When the U.S. was competitive and held all the cards, it truly believed in free competition and capitalism. That was the reason that there was a Chimerica era. China’s cheap labor and huge market were available to U.S. corporations. For example, the American company, Apple, still invests in China and manufactures iPhones there, because the labor cost per phone is in the tens of dollars and the sale price of an iPhone is in the hundreds of dollars. The automobile industry also enjoyed that kind of profitability.
 
II. Why do the U.S. and China part their ways?

• When China was developed gaining both capital and technology

By nature of economic principles, nations advance in their industrial development, migrating from low technology to high technology and from labor-intensive to high automation. The U.S. underwent that kind of industrial transformation with wise investment and kept leadership in advanced technologies. When China followed the West’s footsteps but with harder work and a faster pace, it was gaining in technology and accumulated capital. China has moved itself to the forefront of technology, computers, communication, shipbuilding, and electric cars, and even edging close in robotics, AI, Pharmaceutical, and space technologies. One can understand why the U.S. feels threatened and shies away from cooperation, but is parting with China the right solution for the U.S.? No, it does not make sense.

• When the U.S. runs out of ways to exploit obsolete or other nations’ non-critical technologies and faces capital and technology competition to win investment opportunities.

The U.S. has selected its choice of moving away from the manufacturing industry and moving into the finance industry anticipating a digital revolution. However, this strategy backfired when the digital revolution benefited many more industries than the financial industry. From an employment point of view, the financial industry offers a lot less necessary jobs than many other industrial sectors. China adhered to its belief that employment is a more fundamental need for China, hence its industrial development was paying more attention to the size of the pyramid base than the height of the pyramid tip. Hence, China is leading in the application of 5G technology in common folks’ financial transactions affecting millions of people’s daily lives.

• When China keeps modifying its systems and methods to face the changing world and its development rise and when the U.S. slows down in advanced technology development and has less technology to trade for markets.

The U.S.-China trade issue is a significant factor for the two nations to part ways. It did take a long time for China to move from trading a billion pairs of jeans for Boeing to make its own C919 wide-body jet, but China was able to advance in most manufacturing areas. In the top ten advanced technologies, China is leading in seven and only lagging as second to the U.S. in three categories. However, parting is not a solution for the U.S. nor any benefit for China, only seeking cooperation is making sense.

• When China’s labor advanced in skills and knowledge

U.S. politicians would like to blame China for the U.S. losing competitiveness and global influence, but the truth is that China’s labor force has advanced faster in skills and knowledge so that more advanced products can be supplied by China's domestic manufacturers than from imports. China has a long-term national plan to guide the transformation of industries from low-end to high-end with market elevation.
 
    When China keeps modifying its systems and methods to face the changing world resulting in its development.
 
The U.S. was used to leading the world in technologies and setting the rules but was not accustomed to adapting and reacting to changes. This explains why the U.S. denies Huawei’s 5G internet technology and applies technology sanctions to China. But the sanctions are hurting both nations, especially with advanced technologies still led by the U.S. China’s market has been transformed rapidly to accept advanced technology products. Sanctioning advanced technology products from exporting to China essentially will suffocate the growth of U.S. advanced technologies.
 
After examining the above facts, we may understand the title question. This author believes that parting separate ways with China is not a solution but a copout. The smart way is to seek cooperation to find win-win development. The U.S. has far more resources than China does. China has more population which can be a burden or an asset depending on how China plots its economic development plan. Being a cooperative partner has all the advantages over being a rival parting with a rising China.